Those who have liquid assets and desire asset protection, but do not wish to establish a domestic or offshore asset protection trust structure, under certain circumstances a Swiss annuity may be a viable product. When properly structured, Swiss annuities have proven to be a solid investment vehicle for long-term asset protection and estate planning, are cost efficient, highly liquid and provide a safe international diversification of assets.
According to the London Times: (a) “Swiss banks manage 40% of the world’s offshore private wealth”; (b) Switzerland is the 3rd largest financial center in the world – after London and New York”; and (c) Swiss Banking and insurance are subject to the toughest capital requirements in the world.”
When the annuity is properly structured, the invested assets are entirely protected from creditors under Swiss life insurance law which has existed for over one hundred years. Under Articles 79, 80 and 81 of the Swiss Insurance Act, to be protected from debt collection initiated by a policyholder’s creditors and for the assets to be excluded in Swiss bankruptcy procedures, the policyholder must designate as beneficiaries either (a) his or her spouse and/or descendants; or (b) any other third party, such as an irrevocable trust.
Under Swiss law, the creditors of a foreign investor/policyholder that resides outside of Switzerland cannot seize assets of the insurance policy protected under Swiss law (see Articles 77, 79, 286 and 288), even if the judgment is enforceable in Switzerland unless it can be proven that Swiss fraudulent conveyance laws were violated.
Article 18 of the Swiss Code of Obligations provides that if a Swiss insurance company receives a policyholder’s request to revoke a beneficiary designation and the insurance company knows that the policyholder is under duress and that the request does not reflect the real intention of the policyholder, under Swiss law the insurance company can ignore such a request. Despite U.S. law and provided that a fraudulent conveyance has not occurred as defined under Swiss law, the law clearly dictates that the law of the issuing Company’s domicile (i.e., Switzerland) governs any matter between the issuing company and the policy’s owner.
For those with large estates and who are subject to the U.S. estate tax laws, it is strongly advised that a special type of irrevocable trust be named as the irrevocable beneficiary of the annuity. In order to maintain the income tax deferral on the inside build-up of the annuity’s funds, the irrevocable trust must be deemed to be a “grantor trust” under the provisions of Section 72(u) of the U.S. Internal Revenue Code. In order to obtain income tax deferral the annuity must be a variable annuity, the investments adequately diversified, and the owner is prohibited, under I.R.C. Section 817, from directing the investments. However, the owner is allowed to select from certain viable categories of investments (See U.S. Treas. Regs. Section 1.817-5(f) and I.R.C. Section 817(h)(4)).
A Swiss annuity: (a) offers significant asset protection, tax and investment benefits; (b) when held by an irrevocable trust it offers substantial long-term estate planning benefits; and (c) also offers a viable “fair-value” defense and is more likely to be accepted by a U.S. court as a reasonable method of protecting one’s investment assets.
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